Leyton Employee Retention Credit

COVID-19 has caused hardships and unprecedented challenges for businesses and organizations all over the world. Many employers have experienced reduced revenues, higher expenses, and disruptions to their operations because of lockdowns, distancing from social media, and health-and-safety measures.

Employee Retention Credit is a refundable income tax credit available to eligible employers that helps them retain their employees while providing health benefits.

The ERC is a program that was introduced by the CARES Act of 2020. Subsequent legislation was passed in 2021 and in 2023 to extend and modify it. The ERC will be explained in this article, along with how it works and the different eligibility criteria and time periods for which it can be claimed.

For a brief reading of what the Employee Retention Credit or ERC is, take a look at this video from the YouTube channel “ERC Specialists”. You can also continue below to read an in-depth explanation of ERC.

What is Employee Retention Credit (ERC)? Leyton Employee Retention Credit

Employee Retention Credit (ERC), a refundable tax credits, is available for tax-exempt businesses or organizations with employees that were affected in any way by the COVID-19 Pandemic. The ERC, created in 2020 by the CARES Act, was then extended and modified through subsequent legislation in both 2021-2023. The ERC’s goal is to encourage employers during a crisis to continue to employ their workers, and to offer them health coverage.

Main Features and Benefits

The credit is a percentage of wages and health insurance premiums paid by eligible employees. There are limits per employee, per quarter.
The credit amount and percentage vary according to the time period in which it is claimed. For 2020, the percentage is 50%, and the limit is $5,000 per employee for the entire year. For 2021, the percentage is 70%, and the limit is $7,000 per employee per quarter. For 2023, the percentage is 70% for the first two quarters and 40% for the last two quarters, and the limit is $10,000 per employee per quarter. Leyton Employee Retention Credit
The credit is fully refundable, meaning that if the amount of the credit exceeds the employer’s payroll tax liability, the excess will be paid to the employer as a refund.
Employers may claim the credit if their gross receipts have declined significantly or they have had to suspend operations in whole or part due to a COVID-19-related government order. The credit can be claimed by employers who have been classified as recovery startups only until 2023.
Credits may be obtained by filing a revised employment tax form (Form 941X) or reducing employment deposit amounts in anticipation. Employers can request an advance payment by submitting Form 7200.

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Eligibility Criteria

Employers who wish to qualify for Employee Retention Credit (ERC) must meet two main criteria.

The employer’s company or organization has been suspended, either fully or partly, by an order of the government due to COVID-19 at a particular calendar quarter in 2020/2021
Gross receipts of an employer for a quarter calendar in 2020 or in 2021 are less than half (for 2020) and 80% (for 2021) their gross receipts from the same period in 2019.

The recovery startup rule also applies to businesses that began operating after February 14, 2020 and had average annual gross receipts not exceeding $1 million. These businesses can qualify for the ERC regardless of business suspension or revenue decline.

Business Suspension

An order of the government can suspend a business or an organization in full or part if it:

The order restricts commerce, travel or group meetings because of COVID-19
The order impacts the operations of a business or organization
This order is applicable to any calendar quarter of 2020 or 2021

Some examples of orders from the government that could cause a business to be suspended are:

Orders to stay at home that prevent non-essential companies from operating
Curfews that limit the hours of operation for certain businesses
Limits to the number of clients or customers that a company can serve
Travel bans or restrictions that affect the ability of a business to transport goods or services

Employers must take into account the following to determine whether a business has been suspended in full or in part by an order of government:

The scope and nature of the order as well as how it impacts the business.
The duration, frequency of the orders and their alignment with the four quarters calendar.
The magnitude and impact of the order upon the revenue and expenses of a business

Revenue Decline

A significant decline in gross revenues is experienced by a business or organization if:

The gross receipts from any quarter in 2020 is less than 50% its gross receipts from the same calendar quarter in 2019.
The gross receipts from any calendar quarter during 2021 are less than 80% compared to the same quarter’s gross receipts from 2019.

Gross receipts are the total sums that an organization or a business has accrued or received from all its sources in a given accounting year, without any deductions. Gross receipts include the following:

Sales of Goods & Services
Interest, dividends rents royalties and annuities
Gifts, donations, and contributions Leyton Employee Retention Credit
Membership fees and dues
Gross revenue from businesses or trades

To compare gross revenues for different quarters an employer can use:

It should use the same method of accounting, either cash or accrual, that it used for its federal income tax returns for 2019.
The same calendar year quarters that it used to file its federal employment tax returns (Form 941) for 2019 and 2020/2021
The same sources of income that it reported on its federal income tax return for 2019

Recovery Startup Business

The recovery startup business is one that:

You must have started your business after the 15th of February 2020
If you have average annual gross revenues of less than $1 million in any three tax-year period that ends with the tax-year preceding the calendar quarter for credit determination.

The ERC is available to a recovery startup business regardless of whether or not it meets the criteria for business suspension or revenue decrease. Recovery startups are not exempt from certain rules and restrictions.

The maximum credit per quarter will be $50,000
The credit can only be used for wages paid between the third and the fourth quarters of 2020
The credit has a cap of 250 million dollars for all startup businesses that are eligible.

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Credit Amount Calculation

The ERC has different rules and amounts for different periods of time and different types of employers. The ERC is affected by the following main factors:

How much of the employer’s income was affected in 2019 by the pandemic.
The number of employees that the employer has in 2019 or 2020/2021 and whether or not they worked during the pandemic
The amount of money paid by the employer to each employee as well as their health insurance during pandemic

To receive the ERC, employers must submit forms to the IRS. The form must show the amount the employer paid for their employees’ health insurance, and how they qualified for the ERC. The IRS will check the forms and give the money to the employer. The employer can then use the money for paying their employees, their health insurance and/or to receive refunds or credits on their payroll tax.

ERCs are not available forever. It began in March 2019 and will finish in September 2020. The employer is required to claim ERCs before they expire, or are no longer available. The employer must also spend the money properly and not waste any of it. Leyton Employee Retention Credit

Below is more detailed information on the credit amount and calculation of ERC.

Time Period

Different laws introduced, amended and terminated the ERC in 2020, 2021 and 2022. The amount of the credit varies according to the time period that it is applied for. The following table summarizes the key features and differences of the ERC for each time period:

Time Period	Law	Eligible Employers	Credit Rate	Qualified Wages
2020	CARES Act	Employers with business suspension or revenue decline of more than 50%	50% of qualified wages up to $10,000 per employee per year	Wages paid from March 13 to December 31, 2020
Q1-Q3 2021	CAA and ARPA	Employers with business suspension or revenue decline of more than 20%	70% of qualified wages up to $10,000 per employee per quarter	Wages paid from January 1 to September 30, 2021
Q3-Q4 2021 (Recovery Startup Business)	ARPA	Recovery startup businesses with average annual gross receipts of no more than $1 million,	70% of qualified wages up to $10,000 per employee per quarter (subject to a $50,000 cap per quarter),	Wages paid from July 1 to December 31, 2021,
Q4 2021 – Q3 2022 (Severely Financially Distressed Employer)	ARPA and IIJA	Employers with a revenue decline of more than 90%	70% of qualified wages up to $10,000 per employee per quarter	Wages paid from October 1, 2021, to September 30, 2022

Number of Employees

The number of eligible employees will affect the calculation and definition of health insurance and qualified wages. According to the time frame and number of full-time equivalents (FTEs), an employer can be classified as a small employer or large employer. This table summarizes thresholds and rules to determine the size of an employer for each period.

Time Period	Small Employer Threshold	Large Employer Threshold
2020	Less than or equal to 100 FTEs in 2019	More than 100 FTEs in 2019
Q1-Q2 2021	Less than or equal to 500 FTEs in 2019	More than 500 FTEs in 2019
Q3-Q4 2021	Less than or equal to 500 FTEs in any calendar quarter in either calendar year beginning after December 31, 2019, and ending before July 1, 2021. If an employer did not have in either calendar year beginning after December 31, 2019, and ending before July 1, 2021, the employer is treated as a small eligible employer if it had less than or equal to 500 FTEs in any calendar quarter beginning after June 30, 2021. For recovery startup businesses, the employer size is irrelevant. For severely financially distressed employers, the employer size is irrelevant if the employer had a revenue decline of more than 90%. Otherwise, the same rules as Q1-Q2 2021 apply.	More than 500 FTEs in any calendar quarter in either calendar year beginning after December 31, 2019, and ending before July 1, 2021. If an employer did not exist in either calendar year beginning after December 31, 2019, and ending before July 1, 2021, the employer is treated as a large eligible employer if it had more than 500 FTEs in any calendar quarter beginning after June 30, 2021.

To count FTEs for a given year or quarter, an employer must use the following steps:

Count the number of employees who worked at least 30 hours per week (or at least 130 hours per month) for each month in the year or quarter
Add up the total hours worked by all other employees (who are not counted as FTEs) for each month in the year or quarter
Divide the total hours by120and round down to the nearest whole number
Add the number of FTEs from Step One and Step Three for each month in the year or quarter
Calculate the average number of FTEs by adding up the monthly totals and dividing by 12 (for a year) or 3 (for a quarter)

Qualified Wages and Health Insurance Costs

Qualified wages are wages paid to eligible employees during a period of business suspension or revenue decline. Qualified wage includes tips and bonuses, as well as severance, pays, sick leave payments, family leave payments and other types of compensation. Qualified wages also include the cost of providing health insurance to eligible employees, such as premiums, deductibles, co-pays, and co-insurance.

The calculation of qualified wages, health insurance costs and employer size depends on the time period. This table summarises the rules and provides examples for various scenarios. Leyton Employee Retention Credit

Employer Size	Time Period	Qualified Wages and Health Insurance Costs	Example
Small	2020	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 80 FTEs in 2019 paid $8,000 in wages and $2,000 in health insurance costs to an employee in 2020. The employer had a revenue decline of more than 50% in Q2 2020. The qualified wages and health insurance costs for Q2 2020 are $10,000.
Small	Q1-Q3 2021	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 400 FTEs in 2019 paid $12,000 in wages and $3,000 in health insurance costs to an employee in Q1 2021. The employer had a revenue decline of more than 20% in Q1 2021. The qualified wages and health insurance costs for Q1 2021 are $15,000.
Small	Q3-Q4 2021 (Recovery Startup Business)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not (subject to a $50,000 cap per quarter)	A recovery startup business that began operations in March 2020 paid $9,000 in wages and $1,000 in health insurance costs to an employee in Q3 2021. The business had average annual gross receipts of $800,000. The qualified wages and health insurance costs for Q3 2021 are $10,000.
Small	Q4 2021 – Q3 2022 (Severely Financially Distressed Employer)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 600 FTEs in Q2 2019 paid $11,000 in wages and $4,000 in health insurance costs to an employee in Q4 2021. The employer had a revenue decline of more than 90% in Q4 2021. The qualified wages and health insurance costs for Q4 2021 are $15,000.
Large	2020	Wages and health insurance costs paid to an employee for the time that the employee did not work (up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship)	An employer with 120 FTEs in 2019 paid $10,000 in wages and $2,000 in health insurance costs to an employee who worked full-time (40 hours per week) in 2020. The employer had a business suspension due to a government order in April 2020. The employee did not work for two weeks in April 2020. The qualified wages and health insurance costs for April 2020 are $2,308 ($10,000 x2/52+$2,000 x2/52).
Large	Q1-Q3 2021	Wages and health insurance costs paid to an employee for the time that the employee did not work (up to the amount that the employee would have been paid for working an equivalent duration during the 90 days immediately preceding the period of economic hardship)	An employer with 550 FTEs in 2019 paid $15,000 in wages and $5,000 in health insurance costs to an employee who worked full-time (40 hours per week) in Q1 2021. The employer had a revenue decline of more than 20% in Q1 2021. The employee did not work for three weeks in Q1 2021. The qualified wages and health insurance costs for Q1 2021 are $5,769 ($15,000 x3/13+$5,000 x3/13).
Large	Q3-Q4 2021 (Severely Financially Distressed Employer)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not (only if the employer had a revenue decline of more than 90%. Otherwise, the same rules as Q1-Q32021 apply.)	An employer with 700 FTEs in Q4 2019 paid $12,000 in wages and $6,000 in health insurance costs to an employee who worked full-time (40 hours per week) in Q4 2021. The employer had a revenue decline of more than 90% in Q4 2021. The qualified wages and health insurance costs

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Claim and Report the Credit

To claim the Employees Retention Credit, an employer must file with the Internal Revenue Service a federal Employment Tax Return (Form941) or a adjusted Employment Tax return (Form941X). The employer must report the qualified wages and health insurance costs paid to eligible employees and the amount of credit claimed for each quarter.

Form 941

Form 941 allows employers to declare their quarterly federal taxes, including income taxes, Medicare and Social Security tax. Form 941 is used by the employer to claim ERC for the current quarter or future. The employer can use the Form 941 for:

ERCs can be used to reduce the amount of tax that an employer must pay to the IRS.
If the ERC is greater than the tax that the employer must deposit, you can request an advance payment. Leyton Employee Retention Credit
Carry forward any excess credits to future quarters

To fill out Form 941 correctly and avoid common errors, the employer should:

Use the newest version of the Form 941, which reflects changes to laws that impact the ERC.
The IRS has provided worksheets to help you calculate the ERC.
Use Line 11c to report the qualified wages and health insurance costs paid to eligible employees
Use Line 13d for the credit claim amount per quarter
Use Line 13f to report any advance payments of the credit received from the IRS
Line 24 is the place to ask for an advance payment if you need it.
Use Line 25 to report any credit excess that can be carried over to the next quarter.
Sign and date Form 941, attaching any supporting documents, schedules, or schedules.

Tips and resources on how to complete Form 941 include:

Form 941 can be submitted faster and more securely by using electronic filing (efile) or online services
Check the IRS website for updates, FAQs, and guidance on Form 941 and the ERC
Contact the IRS or a tax professional for assistance or clarification if needed

Form 941-X

Forms 941-X are used to rectify errors or make adjustments to Forms 941 previously submitted. Form 941-X allows employers to claim ERC retroactively. Form 941-X can be used by the employer to: Leyton Employee Retention Credit

Claim a refund or credit for overpaid taxes due to claiming the ERC
Report additional qualified wage and health insurance expenses paid to eligible employees which were not reported in Form 941
Correct any mistakes or omissions made on Form 941 that affect the amount of credit claimed

To avoid making common errors and fill out the Form 941-X correctly, employers should:

Use the latest form 941X that reflects changes to laws that are applicable to the ERC.
Use the IRS worksheets and instructions to calculate and report the ERC
Use Part 2 of Form 941 to indicate which lines are being amended or corrected.
Use Part 3 to explain the reason for a correction or adjustment on Form 941
Use Line 24 to report any additional qualified wages and health insurance costs paid to eligible employees
Line 25 is the place to enter any additional credit claims for each quarter.
You can use Line 26 to request a refund or credit due to claiming ERC.
Sign and date the Form 941 X and add any supporting documents or schedules.

Here are some tips and resources to help you fill out Form 941X:

File a separate Form 941-X for each quarter that is being corrected or adjusted Leyton Employee Retention Credit
You should fill out Form 941/X as quickly as possible after you have made an adjustment or discovered an error.
Check the IRS website for updates, FAQs, and guidance on Form 941-X and the ERC
Contact the IRS or a tax professional for assistance or clarification if needed

Deadline and Statute of Limitations

The deadline for filing Form 941 is generally the last day of the month following the end of each quarter. For Q1 2021 (January-March), the Form 941 must be filed by April 30th, 2021. The employer can still file Form 941 if they have deposited their taxes on time. After the end of the quarterly period. For Q1 2021 (January-March), form 941 must be submitted by May 10, 2020, Leyton Employee Retention Credit

The deadline for filing Form 941-X is generally three years from the date that the original Form 941 was filed or two years from the date that the tax was paid, whichever is later. For example, for Q1 2020 (January-March), Form 941 was due by April 30, 2020. If the employer has filed Forms 941 and paid tax by April 30th 2020, they have until April 30th 2023 to submit Form 941X. If an employer filed Form 941 on April 30, 2020, and paid the tax on June 15, 2020, the deadline for filing Form 941-X is June 15, 2022.

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Conclusion

Employee Retention Tax Credit (ERC), is a valuable financial benefit that helps employers to keep their employees employed and reduces the impact COVID-19 has on their organization or business.

The ERC, a refundable credit, varies according to the time period and number of employees as well as the amount of qualified wage and health insurance expenses paid to employees who are eligible. The ERC is claimed by filing IRS Form 941 or 941-X and reporting qualified wages, health insurance costs, and the credit amount claimed for each quarter.

This tax benefit is available to employers who meet the ERC’s eligibility criteria. The ERC cannot be claimed forever. There is a deadline to claim it and a statute that limits its use. The forms should be filed as soon as you can. You can use the resources and advice provided in this post to avoid common mistakes and fill them out correctly. You can contact the IRS for help or clarification, or you could consult a tax expert.

ERC can have a significant impact on your business, organization, and your employees. It can help your business or organization retain workers, maintain cash flow and recover from a pandemic. This article aims to provide you with more information about the ERC. Stay safe and thank you for reading.

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Leyton Employee Retention Credit

What is ERC and what does it do?

Employee Retention Credit (ERC) is a tax incentive for employers that retained their employees on their payrolls during the COVID-19 Pandemic.

The CARES Act was passed in March 2020. It was amended and extended in December 2020 by the CAA Act (Consolidated Appropriations Act) and in March 2021 by the ARPA Act (American Rescue Plan Act of 2021).

Does everyone qualify for the ERC program?

ERC isn’t available to everyone. Employers who retained their employees and paid them wages between March 13, 2020, and December 31, 2021, are eligible.

You can read more about the criteria here. Here are some highlights.

A government order suspended the business (fully or partly) because of the COVID-19 epidemic.
Their gross revenues for a quarter calendar in 2020 or in 2021 were lower than a percentage compared to their gross revenues for the same period in 2019.
These businesses are recovery startups that have been in operation since February 15, 2020. They also generate gross revenues of no more than $1 million on average per year.

What is the ERC worth?

The amount of ERC an organization or business receives depends on several factors.

Some of these factors include the time period, the number of employees, the number of qualified wages, and health insurance costs paid to eligible employees. The article above provides a detailed explanation on how ERC is calculated.

How to claim ERC?

To receive the ERC, employers must file with the IRS a Form 941-X (revised employment tax returns) or a Federal Employment Tax Reform.

Employers are required to report each quarter the total amount claimed as a credit and the wages and insurance premiums paid by eligible employees.

When is ERC’s deadline?

The deadline for filing the ERC forms is different for Form 941 and Form 941-X.

For Form 941 is generally the last day of the month following the end of each quarter. For Form 941X, the deadline is three years following the date on which the original form 941 was filed. This can also be up to two years, based on the date when the tax is paid.